HIPOS Weekly Update: Wire to Wire Winner

by | Feb 6, 2017 | Alternative Income, HiPOS (High Probability Options Strategy), Technical Analysis, VIX

Last week saw our primary HIPOS trade expire worthless – which is our targeted outcome! This generated the full profit for the clients in the strategy. Since we are short the spread, we take in premium then want it to erode to worthless. To get this entry in early January, we capitalized on a small window of opportunity to enter when volatility spiked. Shortly afterwards, the market moved higher and sideways. Thus, never threatening our defensive exit zone.

A few weeks ago we posted an article illustrating why a spike in volatility is constructive in finding new trades to enter. Titled ‘Why Volatility Matters’, we explained that when volatility is very low, our ability to have a new trade meet all of our strict criteria for entry is not as easy to find. Instead, we must be monitoring the markets to find what are sometimes only brief time periods that allow an entry. While our traders are doing that right now, volatility is still on the low side. Below is a daily chart of the VIX Index showing the closing prices over the last several months.

While volatility has come off its near record lows, it is still very low historically. In this type of environment, ZEGA continues to offer value in our expertise and focus with our ability to be patient. While some premium selling strategies always have positions on, we believe that to give your clients the best opportunity for success, it is better to pick our spots. Often when market pulls back a bit, we find our entries. While we don’t try to guess what the market will do, this often gives your clients more of a cushion against an inverse move in the underlying index.

When we do find a new primary trade that meets our criteria we will be sure to update the blog. As always if advisors have questions give us a call.